As you think about legacy planning, one key consideration is retirement income planning. After all, one definition of retirement is "to no longer need to work for income."
Unfortunately, many financial professionals are too worried about collecting assets and selling products so they don't offer retirement income solutions.
I sometimes like to say that "the income is the outcome" of a successful retirement plan.
Annuities can be a great income solution. And they have been around for about 2,000 years, so they are proven. The Latin word "annua" means annual stipends. In ancient Roman times individuals would make a single large payment into the annua and then receive an annual payment each year until death, or for a specified period of time.
If you have searched the web for financial planning and investing information recently, you probably saw ads from Ken Fischer at Fischer Investments that read in part, "I hate annuities and so should you."
One reason Fischer hates annuities is that he is in the investment brokerage business. He makes money buying and selling investment products. If you already own an annuity, you may not be able to sell the annuity and move the money into brokerage accounts without incurring a penalty for the early withdrawal.
This lack of flexibility is a potential reason to dislike annuities.
Another common issue with annuities is high fees and expenses. Most insurance companies offer annuity products and many have hefty commissions to motivate sales reps to sign clients up. Sometimes the commissions, fees and expenses can total as much as 3% per year.
Your take on annuities depends on who you are
So, if you sell annuities, you love them.
If you sell investment products other than annuities, you hate annuities.
But, if you are looking for reliable income streams you can never outlive, you want to carefully consider annuities as part of your plan.
That's because there is one feature unique to annuities that can be a valuable part of a retirement income plan -- the ability to guarantee income to you for as long as you -- or your spouse -- lives. No matter market conditions. No matter how long you live. The guarantee of an annuity is backed by the financial strength of the underlying insurance company. Although it is possible to have guaranteed income for life with a fixed annuity, there is no assurance that this income will keep up with inflation.
For current retirees, lifetime income is huge, because the risk of outliving their money has never been greater. Today, a 65-year-old woman can expect to live to about 85 according to the Merck Manual, home edition 2013. That's the average. Half will live longer.
So do you NEED to own an annuity? Maybe not. If you are worried about your retirement income plan being derailed by a stock market collapse, then the guaranteed (see above) nature of an annuity will have more value for you. If you have a pension from off-farm employment or a big 401(k) then maybe your need for guaranteed income is less.
But the best way to find out is to have a retirement income plan created by a fiduciary advisor who is dedicated to serving client needs and has no affiliation with any product. A careful analysis can help you sort out the best mix for you.
If this blog has got you thinking about your own situation, get in touch with my office ([email protected]).
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.